Cutting the wires

Technology, mobile telecom stocks drive value-focused fund

SAN FRANCISCO (MarketWatch) -- Most mutual-fund managers view cash in their portfolios as something to spend, not save. Even managers of balanced funds, which blend stocks and bonds, prefer to opt out of safe, low-yielding cash.

Emmanuel Ferreira has a higher regard for cash in his Oppenheimer Quest Opportunity Value Fund
QVOPX, -0.07%
At the end of June the asset-allocation fund had 56% of its assets in cash and the remainder in U.S. and foreign stocks, reflecting the fund manager's cautious optimism that the global economy is on the mend.

The hefty cash stake has allowed Ferreira to sidestep the brunt of the market's downfall -- the fund's class-A shares are up 11% this year through July 20, more than four percentage points ahead of the Standard & Poor's 500 stock-index
SPX, +0.22%
according to fund-tracker Lipper Inc. Its 10.3% loss over the past 12 months is almost 13 percentage points better than the U.S. market benchmark.

Research in Motion

While the fund is defensive with its cash, it can get fairly aggressive with the stocks it owns. About 40% of the stocks are in the technology sector, where Ferreira said he's found some attractive buys.

Wireless communications leader Research in Motion Ltd.
RIMM
(RIM) is a case in point. The maker of the popular BlackBerry device was added to the portfolio last fall and has been a big winner for the fund. The stock is one of the portfolio's top-five positions, and Ferreira remains convinced that RIM's products will continue to dominate sales of so-called smart phones.

RIM, the fund manager said, "is significantly more effective at delivering data, video and text through an existing network. There's a competitive advantage that is difficult to replace."

Ferreira added that the stock, which closed Tuesday at $74.15, is undervalued based on estimated 2010 earnings, with above-average growth prospects and minimal concern about credit.

"The end-market is growing at 20%, the company has no debt -- it's self-funding," he said.

Take-Two Interactive Software

Video-game maker Take-Two Interactive Software Inc.
TTWO, +1.31%
is another of Ferreira's favorites, and was the fund's largest stock holding as of June 30.

Take-Two, whose signature game franchise is the blockbuster "Grand Theft Auto" series, suffered a setback recently when it announced a delay in releasing "BioShock 2," the highly anticipated sequel to its chart-topping "BioShock" game. The company also lowered its full-year earnings outlook. See full story.

Yet Take-Two scores over its biggest rival, Electronic Arts Inc.
ERTS
Ferreira said, for having made significant improvements to its business practices in the past few years. Moreover, he added, Take-Two's stock -- trading at $8.58 as of Tuesday's close -- is attractively priced.

"You're buying a business with underlying growth fundamentals in the teens," Ferreira said. "And it's a business that also has strategic value for other players."

Qualcomm

Qualcomm Inc.
QCOM, +0.31%
designs, manufactures and sells wireless network products. It provides the technology that powers 3G wireless communications -- which is increasingly popular -- and is building its 4G capability. The company also owns patents on this technology, which brings recurring revenue.

All of which greatly appeals to Ferreira. "We know that 3G and 4G are going to continue to grow," he said. Qualcomm, he added, has done a "tremendous job" at managing development costs. "Their competitors are getting weaker, and they're getting stronger."

The fund didn't have a stake in Qualcomm a year ago, but Ferreira saw an opportunity as the stock market plunged and the stock is now the portfolio's third-largest holding.

"It's a company that has superior characteristics, which in a normal market environment you usually have to pay a huge premium for," the fund manager said.

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